The head of the International Monetary Fund delivered a blunt message to the French government in a CNBC interview on Wednesday: "Get your house in order."
France is currently in the throes of another political crisis, with violent student protests stretching into their third week. The movement has seen young people across the country demonstrate against long study days, teacher shortages and rundown schools, as the French government seeks to win over a politically fractured parliament and convince lawmakers to agree to tens of billions of euros worth of spending cuts.
Political instability in France has put pressure on the country's government bonds, known as OATs. Investors now demand a higher yield than they do for bonds issued by the Italian government, with French 10-year bond yields rising by more than 100 basis points since the start of the year.
Georgieva acknowledged the difficulty of the situation, describing it as "a complication of, on one side, the consequence of borrowing shock after shock after shock, climbing on this staircase that does not lead to heaven, and on the other side, a political dynamic scene in France that creates more difficulties for the finance ministry to put a clear path for tightening."
She noted a "very clear recognition in France that deficit needs to be brought under 5%." Last year, France's deficit reached 5.1% of GDP, and the country is subject to the European Union's excessive deficit procedure, which recommends bringing the deficit closer to a reference value of 3%.
When asked if the current situation echoed the euro zone sovereign debt crisis of the early 2000s, Georgieva suggested Europe was better protected now. "The French economy is growing," she said. "And I think we need to remember that, [compared] to the previous time, we have a much more mature system in Europe. We have the strength of the European Central Bank. We have other instruments that Europe has developed to protect against financial stability risks."
Asked whether the multi-billion-euro fiscal adjustment would be more difficult given the student protests, Georgieva conceded that "it's going to be tough, no question about it." She noted that since the Covid-19 pandemic, populations had become accustomed to governments "running to the rescue" of people and businesses when a shock occurs. "As difficult as it is, there has to be active communication to explain to people why getting to a better place is actually in their interest," she said.